Economics Differences

Basis
Definition and
formula
MPC
It is the proportion of change in
consumption expenditure to
change in income.
It reflects the propensity to
consume the addition to the
income.
MPS
It is the proportion of change in
savings expenditure to change
in income.
It reflects the propensity to
save the addition to the
income.
Basis
Definition
Net Exports
Net exports equal exports less
imports.
Method of
Estimation
Concept
Included in final expenditure

method.
It is a domestic concept.
NFIA
NFIA equals factor income
received by residents from
abroad less factor income paid
to non-residents.
Included in production and
income distribution method.
It is a national concept.
Basis
Definition
Capital Loss
If the value of an asset falls due
to unforeseen obsolescence or
due to natural calamities like
floods etc. or due to thefts etc.
Not included in calculation of
national income
Significance
Inclusion in
National
Accounting
Estimation
Example
Cannot be estimated
Loss by fire of machinery.
Capital Consumption
It refers to the fall in the value
of fixed capital goods due to
normal wear and tear and
forseen obsolescence.
It is included in accounting of
national income as a gross
concept.
It can be estimated.
Depreciation of machinery.
Basis
Definition
Fixed Investment
It refers to the addition to the
existing stock of capital during
an accounting year which will
last for several more years.
Time period
Significance
Components
More than one year

Capital formation
Land, plant and machinery,
building etc
Reason
Result of conscious decision

making of the firms
Inventory Investment
It refers to the addition to the
stock of capital accumulated
due to the inflows or depleted
by the outflows during the
accounting year.
Used within the accounting year
Keeps production continuous
Raw materials, Finished goods,
stock
in trade, work in
progress
Due to cyclical fluctuations in
demand and supply
Basis
Factor Income
Transfer Income
Definition
It refers to transactions made

against provision of factor
services namely land, labour,
capital and entrepreneurship.
Net COE from abroad, net
income form property and
entrepreneurship abroad and
net retained earnings of resident
to abroad.
Bilateral. Quid pro quo exists.
It refers to transactions made

voluntarily at the behest of one
party. It is not against provision
of factor service
Scholarships, grants, gifts,
government welfare support
etc.
It is included in both the

calculation of national income
and disposable income.
Payment of wages, rent from
abroad to resident.
It is included only in the

calculation of national
disposable income.
International scholarship
assistance to a resident
student.
Basis
Definition
National Income
It is the money value of final
flow of output of goods &
services produced within an
economy over a period of time,
usually one year and NFIA.
Components
NNPfc = NDPfc + NFIA
Nature
Includes only factor income
Private Income
It is the sum of factor incomes
and non-factor incomes
accruing to the private
production units and
households before payment of
direct taxes.
PI = NNPfc + NDI + CT(gov) +
CT(R/W)
Includes both factor and
transfer income
Basis
Definition
Domestic concept
Domestic aggregates refer to a
group of statistical measures of
the value of production activity
carried out by production units
within the economic territory of
the country.
Geographic territory
administered by the government
within which people, goods and
capital circulate freely.
Where it is originating?
Includes both residents and non-
Components
Nature of
payment
Inclusion in
accounting
Example
Territory
Focus
Resident
Unilateral.
National concept
National aggregates are a
measure of the contribution of
residents of a country to
production both inside and
outside the economic territory
of the country.
Person or institution whose
center of economic interest lies
in the economic territory of the
concerned country.
Who is getting it?
It includes only residents.
Nature
residents.
Unilateral
Bilateral
Basis
Definition
Real GDP
It refers to GDP expressed in
physical quantities.
Formula
Nominal GDP of current year /

price index * 100
Base year price
Only when physical output
changes
Indicates change in production
output in the economy
Price
Reason for
change
Significance
Basis
Autonomous transactions
Definition
A BOP transaction which is

independent of all other BOP
transactions.
Above the line
Trade and export
Profit motive
Floating exchange rate system
Eg. Export transaction
Terminology
Transaction
Motive
Significance
Example
Explicit cost
It refers to the actual payment made to
outsiders for hiring or purchasing
services of the factors of production.
Direct expenditure
It is also called accounting cost
It is recorded and clearly valued in the
books
Basis
Definition
Nominal GDP
It refers to GDP expressed in
terms of current market value
of physical quantities.
Quantitative output of current
year * current prices
Current year price
When either output or price
changes
Indicates inflation or deflation in
the economy
Accommodating
transactions
A BOP transaction undertaken
to cover deficit in autonomous
transactions.
Below the line
Government financing
To rectify disequilibrium in BOP
Fixed exchange rate system
Eg. Borrowing from RBI to cover
deficit
Implicit cost
It refers to the cost of self-supply or
owned factors of production.
Indirect expenditure
It is also called opportunity cost
It is imputed or estimated
Nature
Fixed Cost
Fixed costs are costs which do
not change with the change in
output of a good.
Remains constant
Time
Cannot be changed in short run
Variable Cost
Variable costs are the costs
which change with the change
in output of a good.
Varies in proportion to output
level
Can be changed in short run
dimension
Alternate
Names
At zero level of
output
Effect on
business
Example
Diagram
Supplementary or indirect cost
Prime or direct cost
It remains positive. It can never

be zero.
It cannot be avoided once
production unit starts
functioning.
Eg. Rent, electricity
It is zero.
Microeconomics
It studies individual economic units
The basic parameter of microeconomics
is price i.e. consumers and producers
take economic decisions on the basis of
price.
It uses the partial equilibrium method
given by Marshall.
It deals with determination of price and
outputs in individual markets.
It aims at optimum allocation of
resources.
Eg. Individual demand, PCI etc
It is incurred only on actual

production.
Eg. Wages, raw material
Macroeconomics
It studies aggregate economic units
The basic parameter of
macroeconomics is income i.e.
economic decision relating to
consumption, saving, investment etc or
on the basis of national income.
It uses the general equilibrium method
given by Walrus.
It deals with determination of general
price level and national output in the
country.
It aims at determination of aggregate
output, national income, price level and
employment level in the economy.
Aggregate demand, national income
etc.
Basis
Market economy
Definition
It is a free market system
Centrally planned
economy
It is a type of economic
Ownership of property
Freedom of enterprise
Motive of production
Who governs production
Competition
Distribution of income
Role of government
built on private ownership,

in particular, the idea that
owners of capital have
property rights that entitle
them to earn profit as a
reward for putting their
capital at risk in some form
of economic
activity.
Private ownership
Exists
Profit motive
Price mechanism
Exists
Very unequal
No role
system in which decisions

on the three basic
economic questions of
what, how and for whom to
produce are taken by a
central authority.
Public ownership
No freedom
Social welfare
Planning mechanism
Doesnt exist
Relatively equal distribution
Complete role

Economics Differences

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Economics Differences

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Basis

Included in final expenditure

More than one year

Result of conscious decision

It refers to transactions made

It refers to transactions made

It is included in both the

It is included only in the

NNPfc = NDPfc + NFIA

Includes only factor income

Nominal GDP of current year /

A BOP transaction which is

Cannot be changed in short run

Supplementary or indirect cost

Prime or direct cost

It remains positive. It can never

It is incurred only on actual

It is a free market system

built on private ownership,

system in which decisions

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